Therapeutic Variance Analysis

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A variance is “the difference between an actual amount and the budgeted amount; labeled as favorable if it increases operating income and unfavorable if it decreases operating income” (Nobles et al., 2014). Budgeted variances are critical to a business, such as Peyton Approved, due to the issues that are causing them. If a business does not take the time to try and figuring out why the variances have occurred then the problems will never be solved and could potential hurt the success of the company. An unfavorable or favorable variance is an honest outcome deriving from the contrast in the actual results and what was budgeted, so business need to take the time and actually ask why the variance is unfavorable. There could be many different reasons ranging from the…show more content…
With the two pricing equaling each other, that means there is a zero change. For direct materials efficiency variance, the standard quantity was 30,000 units and the actual quantity was 31,000 units. There is an unfavorable direct materials efficiency variance of 7,750 due to the 232,500 of budgeted materials among 240,250 of actual materials used. For direct labor variance, there was an initial $16/hour and an actual cost of $15/hour. The difference of one dollar per hour here ended Peyton Approved with a $33,000 favorable labor variance. Finally, for Peyton Approved’s direct labor efficiency variance the standard quantity of labor hours was 30,000, while the actual quantity in labor hours were 33,000. Peyton Approved’s standard cost of $16/hour and the actual quantity of 30,000 labor hours results in $528,000, which means that there is an unfavorable labor efficiency variance of 48,000 caused by a rise in labor hours within the company. These labor and materials variances can help Peyton Approved find any issues that need to be corrected and budget more
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